Dubai Regulator Bans Privacy Coins in DIFC From Jan. 12
- DFSA bans privacy tokens in DIFC, citing AML and sanctions compliance risks on Jan. 12.
- Ban spans trading, promotion, funds, derivatives, and blocks, and also includes mixers and tumblers.
- Updated rules shift token suitability checks to firms and tighten stablecoin standards.
Dubai’s financial regulator has banned privacy tokens from use across the Dubai International Financial Centre (DIFC). The Dubai Financial Services Authority (DFSA) said the decision was driven by anti-money laundering and sanctions compliance risks. The ban is part of a wide update to the DIFC crypto framework. The new rules take effect on Jan. 12 and reshape how tokens are handled.
The DFSA ban applies across trading, promotion, fund activity, and derivatives in or from the DIFC. It blocks regulated firms from offering or dealing in privacy coins under DIFC oversight. The move comes at a time when privacy-focused tokens have again drawn attention from traders in broader markets. However, DFSA officials said the compliance risk is not manageable.
Privacy tokens make FATF compliance nearly impossible, DFSA warns
According to a report, Elizabeth Wallace, associate director for policy and legal at the DFSA, said privacy tokens make legal compliance nearly impossible. She stated that these tokens are built to hide transaction history and wallet ownership. That design prevents firms from meeting Financial Action Task Force expectations. FATF rules require firms to identify key parties involved in crypto transfers.
Wallace said firms must be able to identify the originator and the beneficiary of a transaction. She explained that privacy features block the verification process. She also stated that most financial crime controls fail when transaction details are hidden. The DFSA framed the step as necessary for a financial center that wants global alignment.
The updated rules also ban the use or offering of privacy devices by regulated firms. These include mixers, tumblers, and tools that obscure transaction trails. The DFSA said such devices could be used to hide flows and evade controls. The regulator included these restrictions to tighten enforcement.
The DIFC approach contrasts with some other markets. Hong Kong still allows privacy tokens in theory under its licensing model. Still, risk-based compliance makes it hard for platforms to list them in practice. The European Union has moved further by limiting privacy assets in regulated markets.
The DFSA update also tightens how stablecoins are treated. The regulator refined the category it calls fiat crypto tokens. Under the new approach, this category is reserved for tokens pegged to fiat currencies. The tokens must also be backed by high-quality, liquid assets.
Related: USDT Gains Formal Recognition Under ADGM Framework
Wallace said the focus is on redemption strength during stress periods. She explained that asset quality and liquidity matter when holders demand redemptions quickly. She also said algorithmic stablecoins raise more concerns. She pointed to lower transparency and uncertainty around how redemptions work.
DIFC Shifts Token Checks to Firms as DFSA Tightens Stablecoin Rules
Under the previous regime, the DFSA maintained a list of recognized tokens. That list included Bitcoin and Ethereum. Reports also referenced Litecoin and ZetaChain as approved. Under the updated framework, the DFSA shifts more responsibility to licensed entities.
Licensed firms must now conduct suitability assessments before using tokens. They must evaluate token purpose and governance transparency. They also must consider market history and liquidity. This change places more compliance burden on firms operating inside DIFC.
Some stablecoins already recognized in DIFC remain available. Approved fiat-backed tokens include Circle’s USDC and EURC. Those were the first regulated stablecoins in DIFC. The framework also recognizes Ripple’s RLUSD, which surpassed $1 billion in market cap less than a year after launch.
DFSA’s move also aligns with policy in mainland Dubai. Dubai’s Virtual Assets Regulatory Authority banned privacy tokens in February 2023. VARA defined privacy tokens as assets that prevent tracing on public ledgers. The DIFC ban follows the same basic direction but applies within DIFC’s regulatory perimeter.
Industry participants said the restrictions mainly affect DIFC-licensed firms, not individual holders. Mert Mumtaz of Helius noted that VARA already applied similar rules. He also said similar frameworks exist in Europe. The latest DFSA step adds another layer of compliance enforcement in Dubai’s financial zone
